Here comes unlimited beef access to the US: Over the Hooks

The AUSFTA came into force on January 1, 2005.

For the Australian beef industry the agreement included an 18-year transition from a tightly-controlled beef import quota market of 378,214 tonnes to one unlimited by tariffs or quota restrictions.

2022 is year 18 of that agreement with a tariff-free quota level for Australian beef of 448,214 tonnes, which is 70,000 tonnes higher than in 2005.

On January 1, 2023, the transition arrangements will have been completed and the US market will offer unlimited access for Australian beef.

For any processor/exporter that has been operating in the US market for a few decades, this is a world away from the 1970s, 1980s and 1990s when US beef quota access had such a major influence on beef processing in this country.

Quotas distort markets because they distort market signals. In years past, where production of grinding meat in Australia was forecast to exceed quota access to the US, it put a considerable value on receiving a quota allocation each year.

Allocation was based on performance in previous years so to maximise your return on the quota, the incentive was to use the quota so you would get your allocation the following year. That 'use it or lose it' approach was to some extent self fulfilling.

No matter what quality of product you were producing or for which market, every beef processor was producing some grinding or manufacturing meat and the best market in the world for that product was the US.

Without quota access to the US, you usually had to sell your grinding meat at a discount into other markets yet you were still competing in the same livestock market as those who had US quota.

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The AUSTFA was criticised at the time, with some analysts believing the negotiators should have done better than 70,000 tonnes of additional access over 18 years.

The great benefit I believe it provided was that along with a more market-driven system of quota management introduced at the same time, the extra access took away the need to ship to the US to ensure you got your quota back the next year.

Except for 2015, it left the US beef market operating on commercial supply and demand parameters without any quota system to distort it.

The fact that, on average, shipment levels have fallen since AUSFTA is a reflection of this and that exporters have been much freer to maximise the return on their product and not the quota with product more easily seeking out the best return.

The rise of other markets like China has helped that trend.

Brazil, the world's largest beef exporter, regained entry to the US for fresh and frozen beef in February 2020 after two decades of uncertainty over foot and mouth disease and BSE issues. Showing its potential as a competitor, in the first eight weeks of 2022, over 25,019 tonnes of Brazilian fresh and frozen beef was imported into the US, exceeding shipment levels from traditional beef suppliers Australia and NZ over this same period.

Brazil however will not be able to maintain this access volume for fresh and frozen beef because despite having achieved the health and hygiene status required, they do not have the tariff-free access that Australia has negotiated over many years culminating in its FTA with the US.

Brazil is confined to the 'Other Beef Quota' in the US that only allows 64,508 tonnes of fresh and frozen beef at the preferential duty rate of 4.4 cents per kilogram.

That quota is shared with other countries like Costa Rica, Honduras, Ireland, Lithuania and Nicaragua.

Current estimates by the Meat Importers Council of America suggest that if imports continue at the current rate, the quota could be filled by mid-to-late April.

When this happens, Brazil will have to pay the out-of-quota tariff of 26.4 per cent ad valorem to gain entry - a tariff level that normally prices most operators out of the market.

Australia on the other hand pays zero tariff as part of its FTA agreement and next year will have unlimited access.

Even New Zealand, who does not have an FTA with the US, still pays the 4.4 cents preferential duty on every kilo.

Eighteen years on from 2005, the FTA with arguably Australia's most consistent beef market over the past 50 years has I think delivered for the Australian beef industry.

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